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The 10-year Treasury yield edged lower Friday but held above 2%, while short-dated yields extend a sharp rise triggered the previous session by a hotter-than-expected January inflation reading.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.011%
was at 2.004%, compared with 2.028% at 3 p.m. Eastern Thursday. The 10-year yield jumped more than 10 basis points Thursday, for its highest finish based on 3 p.m. levels since July 31, 2019, according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.577%
was at 1.562%, up marginally from 1.56% Thursday, when it jumped 21.4 basis points for its biggest one-day gain since June 5, 2009. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.280%
was at 2.271%, down from 2.308% late Thursday. - The yield curve, a line tracking rates across Treasury maturities, continued to flatten Friday after the spread between 10-year and 2-year Treasury notes narrowed the previous session to around 47 basis points, its narrowest since 2020.
What’s driving the market?
The Treasury selloff that pushed up yields Thursday came after the January consumer-price index showed a larger-than-expected 7.5% rise, its hottest reading since February 1982. Adding fuel to the fire, St. Louis Federal Reserve Bank President James Bullard, a voting member this year of the central bank’s rate-setting Federal Open Market Committee, told Bloomberg that he would like to see the Fed raise rates by 100 basis points, or 1 percentage point, over its next three meetings, including a possible half-point hike in March.
Fed-funds futures traders moved to more aggressively price in a half-point March move.
Other Fed speakers on Thursday played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said he was open to the concept, but questioned whether there was a “screaming need” to do it. “I would have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.
Barkin and Daly aren’t 2022 voting members of the FOMC, but all regional Fed presidents participate in policy discussions.
Inflation data is expected to remain the main driver of financial markets. On Friday, investors will see the University of Michigan’s preliminary February estimate of five-year inflation expectations as well as an overall consumer sentiment reading at 10 a.m. Eastern.
What are analysts saying?
“The yield curve has continued to relentlessly grind flatter overnight,” said strategists Ian Lyngen and Benjamin Jeffery at BMO Capital Markets, in a note.
“Daly and Barkin attempted to offset the sentiment toward a dramatic start to the hiking campaign by noting there isn’t a convincing argument for 50 bp (basis points),” they wrote. “Suffice it to say, Bullard’s hawkishness met a far more receptive audience in the Treasury market as evidenced by the ongoing weakness in the 2-year sector and the fact the January 2023 fed funds futures contract is trading at an implied rate of 1.785% this morning.”
